2023 Canadian Policy Updates from ISS and Glass Lewis Focus on Diversity and Climate Risk | Chicago Popular


Updates from Canadian firm Institutional Shareholder Services (ISS) and Glass Lewis for the 2023 delegation season continue to focus on board diversity and climate risk oversight. Other issues considered include overboarding, non-employee director deferred share plans, long-term incentive awards and cyber risk.

In regards to diversity, highlights include the following expectations for favorable recommendations:

  • S&P/TSX composite index companies (constituents of the composite index) will have at least 30% women on their board of directors;
  • Non-composite index members will have at least one woman on the board; And
  • For meetings after February 1, 2024, the Composite Index Constituents will have at least one director of a different ethnicity or race (as required by the ISS, in particular).

ISS updates for 2023

On November 30, 2022, proxy advisory firm ISS officially released its updated policy changes for 2023. Most of these changes will go into effect for shareholder meetings beginning February 1, 2023, e.g. except for a new board of directors racial and ethnic diversity policy that will begin on February 1, 2024.

Gender diversity on the board of directors (updated)

For Composite Index Constituents, ISS will generally vote withholding for the relevant committee chair (or board chair if there is none) if women make up less than 30% of the board.

If, however, the company discloses a written commitment to achieve 30% female representation on the board of directors at or before the next annual general meeting (AGM), an exception will be made for companies that:

  • have joined the S&P/TSX Composite Index and have not previously been subject to 30% female representation on the board as Composite Index Constituent; or
  • fell below 30% female representation on the board due to an extraordinary circumstance after reaching that level of representation at the previous meeting.

Under current ISS policy guidance, a “hang-out” vote would generally only be recommended where women make up less than 30% of the board and the company has not made a formal, publicly disclosed commitment to at least 30% before of the next general meeting.

For all other TSX companies, ISS will generally vote withholding the relevant committee chair (or board chair if there is none) if there are no women on the board, regardless of whether the company has a formal policy and written about gender diversity. This policy, however, will not apply to: companies that have recently gone public in the current or previous tax year or companies that have transitioned from the TSXV in the current or previous tax year; or companies with four or fewer directors. Exceptions will also be made for those who temporarily have no women on the board due to an extraordinary circumstance after having had at least one woman on the board at the previous meeting, provided that the company has made public a written commitment to add at least one woman to the board. at or before the next AGM.

ISS will also continue to assess on a case-by-case basis whether “withholding” recommendations are warranted for additional directors of companies failing to comply with the above policy that would apply to their respective constituent group for two years or more.

Racial/Ethnic Diversity Board (new)

For shareholder meetings to be held on or after February 1, 2024, ISS has introduced a new policy to encourage Composite Constituents to value the racial and ethnic diversity of their boards of directors. Under this new policy, the ISS will generally vote down or reject for the relevant committee chair (or board chair if there is none) if the board does not have any apparently racially diverse members or ethnic.

Racial or ethnic diversity includes people who are Aboriginal or a visible minority (non-Caucasian and non-White), as defined by the federal government of Canada. Employment Equity Act.

An exemption from this policy will be granted if a board which, at the previous year’s AGM, included a member of a different race or ethnicity, but no longer does, makes a firm public commitment to appoint at least one such member at the or before the next AGM. Additionally, the ISS will determine on a case-by-case basis whether “against” or “withheld” recommendations will apply to companies that fail to comply with the policy for at least two consecutive years.

Climate responsibility (new)

For companies deemed significant emitters of greenhouse gases (GHG), according to the list provided by the Climate Action 100+ Focus Group, ISS announced a new voting recommendation policy to increase corporate accountability on climate issues. ISS will now generally recommend that shareholders vote down or withhold a vote on the incumbent chairman of the accountable committee, or other directors in certain circumstances, if the company does not take the minimum steps necessary to understand, assess and mitigate the risks associated with the change climate change for society and the wider economy.

ISS divides minimum steps into two main categories:

  • detailed disclosures on climate-related risks (adopted by the Task Force Framework on Climate-Related Financial Information (TCFD), including:
    • board governance measures;
    • business strategy;
    • risk management analysis; And
    • metrics and targets; And
  • appropriate targets for the reduction of greenhouse gas emissions.

According to the ISS, “adequate GHG emission reduction targets” will be GHG reduction targets by 2050 for a company’s operations (Scope 1) and electricity consumption (Scope 2) medium term, and the targets should cover the vast majority of the company’s direct emissions.

TSX/TSXV Company – Deferred Fee Plans for Non-Employee Directors (Updated)

ISS will generally recommend votes for Non-Employee Director Deferred Compensation (NED) plans if Deferred Share Shares (DSU) can only be awarded in lieu of cash commissions on a value-for-value basis and no discretionary grants or subsidies are permitted. other type. Where the plan allows for discretionary grants, ISS will only recommend voting for it if certain conditions are met, including a 10% cap on dilution with all other equity compensation arrangements, limited NED participation, and the plan requires approval of the shareholders for some modifications. In addition, ISS will consider other elements when assessing whether a DSU plan is seen as beneficial to shareholder interests overall when determining voting recommendations.

ISS also updated its policies on NED participation in DSU plans and director overboarding for venture capital firms.

Glass Lewis Updates for 2023

In November 2022, Glass Lewis also released its updated policy guidance, which will generally apply from 1 January 2023.

Gender diversity on the board of directors (updated)

Glass Lewis will move from requiring a fixed number of gender diverse members to requiring a target percentage of gender diversity on the boards of TSX companies. Under this policy, Glass Lewis will generally recommend voting against the nominating committee chairman of any TSX company board of directors who is not at least 30% gender-different, as well as all members of the nominating committee of a board without directors with gender diversity. Glass Lewis may, however, refrain from recommending that shareholders vote down directors where boards have provided sufficient reasoning or a plan to address the lack of diversity within the board.

Environmental and social risk management (updated)

For composite index constituents, Glass Lewis will recommend voting against the governance committee chair, unless the company has provided explicit information outlining the board’s role in overseeing environmental and social (E&S) issues. Glass Lewis, however, will not impose a specific structure for this type of oversight. Rather, companies will have the discretion to decide whether to involve the entire board, a separate committee, or combine these responsibilities with those of a key committee to govern company-specific E&S matters.

Cyber ​​Risk Supervision (new)

In response to increased regulatory attention and the potentially negative outcomes of cyber-attack risks, Glass Lewis will introduce a new policy governing cyber risk. Glass Lewis has not provided specific guidelines regarding the oversight or disclosure of these risks. Glass Lewis may, however, recommend voting against certain directors who govern companies that have experienced cyber attacks that have caused significant harm to shareholders if Glass Lewis believes disclosure or oversight of cyber risks is lacking.

Director’s responsibility for climate issues (new)

Glass Lewis’ new climate risk policy requires companies, especially those whose financial position could be impacted by greenhouse gas emissions, disclose how they are mitigating and overseeing climate risk. Glass Lewis can recommend voting against board members responsible for overseeing climate issues in the following circumstances:

  • insufficient alignment with the TCFD framework; and/or
  • Board oversight of climate-related issues has not been explicitly and clearly defined.

Director’s Duties (Updated)

Also coming into effect in 2023 are updates to Glass Lewis’s policy on director engagements, which assesses whether directors have the ability to adequately perform their duties on the board. Under this new policy, Glass Lewis could recommend a vote against directors who hold a position as an executive officer at a public company while also acting as a board member of two or more boards of directors of outside public companies.

Long Term Incentive Awards (Updated)

Finally, Glass Lewis will strengthen its control over executive compensation programs that provide less than 50% of an executive’s long-term incentive awards subject to performance-based vesting conditions. This differs from last year’s Glass Lewis policy, where the threshold was 33%. Glass Lewis can still refrain from a negative recommendation in the absence of other significant issues with the design or operation of the program, but a negative trajectory in award amount can lead to a negative recommendation.

Glass Lewis also clarified his approach on other policy recommendations, including multi-class structures with unequal voting rights, compensation committee performance, firm responsiveness to pay-to-pay analysis and one-time bonuses, among others .

The author would like to thank the support and assistance of Angelo Chelseaarticulating law student.


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Written by Natalia Chi

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